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Title: Pricing approaches

Submitted by
Saeed-ullah

Submitted to
Ms. Shanila Yousuf

Reg # 9124

Section # Null

Date: 25/12/2020

Department of Computer Science

City University of Peshawar
& information technology
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Q: What is the difference between values based pricing and cost based pricing? Give example.

Businesses have generally two types of approach to set the price of the product the one is value

based pricing and another is cost based pricing. When a company uses cost based approach it will set the price

at a percentage above the cost of the product whereas setting the value based pricing will look to the value of

the product mean to know about the customer views about their product or services and how much a customers

are willing to pay. The cost based pricing uses the price floor and price ceiling which refers to maximum and

minimum prices. This approach uses in companies like textile companies, food product and building materials.

Value based pricing will consider the happiness, efficiency and stability of the product and the company will

also determine how much money or value its product will generate for the customer. Companies who produce

medication chemicals and computer program and artwork often uses this strategy.

Example of Value-based pricing:

A painting can be priced very high as much more than price of canvas and paints depending upon the

painter who paint it.

• Apple Company.

• Fast food restaurants like Hardees, Chaya khana.

Example of Cost-based pricing:

James Hill formed a firm to design and produce furniture and furnishing parts by using recycled

materials. The firm’s goods can be manufactured at very low cost since most of the components are obtained for

free. E-commerce sites produce marketing and revenues, which keep sales costs to a minimum. Mr. Hill wanted

to apply cost-based pricing with a 20 percent margin over cost in order to set rates. Unit prices were around

US$24 since costs averaged US$20 per item.

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An acquaintance, however, noticed that many clients concerned with the environment were prepared to pay

even more for such innovative and artistic designs. This friend suggested James to monitor offers shown by a

common furniture brand after doing some market research, and to recognize comparable products in terms of

functionality and size. Therefore, to set the floor price and brand prices to set the ceiling price, the company

used cost-based pricing.